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July 2, 2013

Nonprofit Sector Reacts to ‘Worst Charities’ Exposé

New Oregon law will penalize charities’ underspending on mission

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The nonprofit sector has responded with a mixture of both alarm and calls for action to the investigation that uncovered unsavory practices by the “50 worst” charities in America.

In the meantime, Oregon has become the first state to crack down on charities that fail to spend enough of their donors’ contributions on mission.

Last month, the Tampa Bay Times and The Center for Investigative Reporting published a report identifying 501(c)(3) charities around the country that gulled donors by adopting popular causes or calling themselves names similar to those of well-known charities.

“The nation’s 50 worst charities have paid their solicitors nearly $1 billion over the past 10 years that could have gone to charitable works,” the report said.

Last week, The Chronicle of Philanthropyreported that only one major nonprofit group, the Association of Fundraising Professionals, had issued a statement about the investigation, and it seemed more critical of the reporters than what they uncovered.

The association said the organizations named in the exposé “are such extreme cases that they are not representative of what a typical charity looks like or how it operates.”

The Chronicle reported that another organization, a startup called Charity Defense Council, had urged the investigative reporters “not to write a story based on overhead and fundraising ratios but to write a story based on impact.”

After the article appeared, the group dismissed it for “clearly using a headline to grab readers,” making it suspect from the start.

The Chronicle said several groups on the “50 worst” list had contested their rankings, while some not on the list had tried to put distance between themselves and the others.

On a more proactive note, Roger Craver, a direct-marketing expert, urged nonprofits to tackle the issue head on, according to the article. Remaining silent, he said, amounted to “nothing more—or less—than the collective turning of our backs on the donor.”

And Doug White, a Columbia University philanthropy-ethics expert, proposed establishing a committee of nonprofit experts to clamp down on unethical practices.

Oregon Cracks Down

The Chronicle article noted that the “50 worst” investigation had shone light on regulatory gaps at the state level that could enable unethical or fraudulent behavior by charitable groups.

Now, Oregon has cracked down on charities that spend too little of their money on the mission.

Last month, the governor signed a bill that will eliminate state and local tax subsidies for nonprofits that spend more than 70% of donations over a three-year period on management and fundraising rather than programs and services, according to the Statesman Journal.

Donors to those charities will not be able to claim a state tax deduction, and the organizations will lose their local property tax exemptions.

The article said that the Oregon Department of Justice has identified a top 20 list of the “worst of the worst.” These included a Michigan-based outfit that spent 2.7% on programs over the past three years.

“These organizations have found the business model of using a nonprofit as a cover for what’s basically a telemarketing for-profit firm,” the head of the Nonprofit Association of Oregon told the Statesman Journal.